INTERNATIONAL TRADE: Australia's blunders in trade negotiations

Australian trade policy has for too long been characterised by narrow economic ideology and a refusal to stand up for the national interest, argues former senior trade negotiator Colin Teese.

More particularly, we have been too hasty in throwing away our most valuable bargaining chips in trade negotiations - for no gain whatsoever, and to the huge disadvantage of our agricultural and manufacturing exports.

In a few weeks' time, the Cairns Group of agricultural-exporting countries is set to meet in Queensland. Their task will be to try to restart the World Trade Organization (WTO) Doha Round of negotiations.

The Cairns Group was conceived 20 years ago by Australia at the time of the Uruguay Round of trade negotiations sponsored by the General Agreement on Tariffs and Trade (GATT) - the forerunner of the WTO. Its purpose was to bring together the collective negotiating strength of the world's exporters of agricultural products to fight agricultural trade protection.

The outcome of the 1994 Uruguay Round on agricultural protection - which also heralded the beginning of the WTO - was trumpeted as a great success. Within Australia, there was much self-congratulation about the Cairns Group's achievements, and of the pivotal role Australia had played in the group's success.

Wildly exaggerated

Unfortunately, the value of the gains for farmers emanating from the Uruguay Round turned out to have been wildly exaggerated - certainly for Australian farmers. Twelve years on, we now know they amounted to very little.

Now the group is again gathering in its city of origin. Its motive, one suspects, is based on little more than the hope that an exercise in nostalgia can bring forth solutions to the problems of agricultural trade liberalisation. In reality, all else has so far failed - not merely in this particular negotiation, but over the last 30 or 40 years.

What makes this so? Over the last 30 years or so - mostly for ideological reasons associated with blind faith in the virtues of free trade - we have lost sight of what multilateral trade negotiations have been about since the end of World War II.

The slide began with Gough Whitlam's Labor Government (1972-75). Prime Minister Whitlam came into office as the Tokyo Round of trade negotiations was about to be launched. Prompted by ideologically-committed advisors, he immediately announced his Government's intention to cut industrial tariff rates (that is the taxes imposed on imports) by 25 per cent across the board.

The Department of Trade, which was not consulted about this, pleaded that the decision be integrated with our stance for the Tokyo Round. It pointed out that a decision for major tariff cuts - in advance of a major international trade negotiation - effectively deprived Australia of a valuable bargaining counter which could be used by our negotiators to gain important benefits for Australia's farm exports in the then forthcoming round.

The department being in bad odour with the new Labor Government, its arguments had no impact, and the Whitlam tariff cuts went ahead.

That the beneficiaries of the Department of Trade's advice would be farmers probably sealed Labor's opposition to it. Farmers did not vote Labor, and the Trade Department - in Labor's misguided view - was an arm of the then Country (now National) Party.

What the Whitlam Government was in fact signalling, from its earliest moments, was its willingness to put narrow political considerations ahead of Australia's national interest.

Thus, a major shift in our trade policy stance was taken, on the run, and against the advice of those with specialist knowledge of the processes involved in multilateral trade negotiations. Instead, the Government embarked upon a course of action decided by a combination of free trade ideology and party politics, and with small concern for the likely wider effects.

The Whitlam strategy for trade policy was resumed by the Hawke and Keating Labor governments (1983-96) - and, sadly, even accelerated by subsequent Coalition governments.

The new direction for our trade policy, initiated by Whitlam, could not have come at a less opportune time, and could not easily be accommodated within the trade negotiating practices followed by GATT. The organisation's rules helped promote the orderly flow and expansion of international trade, and it also provided the forum in which the downward negotiation of tariffs on industrial goods could be advanced by encouraging the major negotiating parties to conclude reciprocal and mutually beneficial tariff reductions.

Under GATT rules, the benefits of these negotiations would flow on to the rest of the member countries of GATT and thus stimulate trade flows throughout the Western world.

So far as industrial products were concerned, GATT rules required that border-protection measures would normally be by means of tariffs (i.e., border taxes on imported goods). Subsidies on exports could not be used except in certain specified circumstances.

It was made clear from the start that agricultural trade could not be governed by these rules. It was expected, and recognised, that agricultural production would routinely be subject to various forms of necessary government regulation and intervention.

Until 1972 (the year the Whitlam Government won office), GATT members accepted that agricultural trade could not be managed by market forces.

The U.S. had been granted a formal waiver of GATT rules for its agriculture in 1954; and the European Economic Community (EEC), since 1956, had operated its Common Agricultural Policy (CAP), also within GATT rules. Australia and other nations - first, within the British Empire and, later, the British Commonwealth - enjoyed preferential access for all their exports, including farm products, under Imperial Preference agreements.

All of this suited Australia, in particular. It would not have been convenient, for reasons not necessary to consider here, for us to be involved in downward negotiation of industrial tariffs. And since no deals were being offered to us on agriculture, there was no pressure on us from the rest of the GATT membership to reduce our industrial tariffs.

Threatened

But, from the beginning of 1973, all that changed. Most importantly, Britain joined the EEC, and, as a consequence, the British Commonwealth Imperial Preference arrangements had to be terminated. Overnight, the future of the most important part of Australia's agricultural exports was threatened, along with the delicate balance of our interests in GATT.

Almost immediately, the question of trading rules relating to agriculture became a major issue in the GATT. Both the British and their new partners in the EEC attempted to placate Australia and New Zealand, arguing that the loss of the British market would be compensated for by the opening up of emerging export opportunities elsewhere, free from competition from Europe's mounting agricultural surpluses. These, it was insisted, would be absorbed into the enlarged European Community. Meanwhile, there remained the possibility of negotiating limited bilateral deals for certain agricultural products - notably beef.

In fact, such was the nature of the European farm-subsidy program that the product surpluses continued to rise beyond what could be absorbed into the British market. European-subsidised competition has been a problem ever since.

U.S. farm subsidies were also a problem for us. There can be no doubt that they have affected our wheat sales over many decades. But cultural and political reasons have been at work to explain why we have been more inclined to tolerate them.

The pressure came on these subsidy programs in the Uruguay Round of negotiations where some minor progress, more apparent than real, was made. But it was also made clear, for the first time, that the U.S. and Europe were permanently committed to maintaining their agricultural sector regardless of questions of efficiency. Despite this, free trade interests in Australia had persuaded our government to dismantle protection for our farmers quite separate from the bargaining processes of the WTO.

The naïve belief was that, from this position, we could persuade Europe and the U.S. to do the same and would strengthen multilateral trading rules. Ironically, it has done the opposite. Our fatally flawed strategy has actually helped bring the Doha Round to a halt.

The U.S. and Europe have no interest in trading agricultural concessions with each other. They already have free entry into the Australian market for their agricultural exports. And, to the extent that they are prepared to relax their protective regimes, they want something in return, outside agriculture. Unless and until something tempting comes onto the table, don't expect the U.S. and Europe, the key players, to be interested in restarting the talks.

Besides, other options are available to them. They can expand - and are expanding - the range of bilateral deals in which they can more easily safeguard their agricultural interests.

All of this is bad news for the WTO and the future of its system of multilateral rules - and for the forthcoming meeting of the Cairns Group. Much will be said, tongue in cheek, about how any failure on agriculture in the WTO will disadvantage developing countries. It will not, since most are developing countries which export tropical products, whereas the push for liberalisation is for temperate-zone products.

Agricultural trade liberalisation won't benefit developing countries. What they don't need - as has been well pointed out in a paper by a former UN Food Agriculture Organization (FAO) official, Dr John Hodges, entitled "Cheap Food and feeding the world sustainably" (see News Weekly, September 4, 2005) - is competition in their domestic markets from subsidised exports from developed producers. As the capitalist economies of the U.S. and Europe well recognise from history, the destruction of rural communities is no path to national prosperity.

No doubt this is behind the French idea that the Doha Round of trade negotiations could best be advanced by excluding agriculture from the WTO.

Ideological shackles

The idea makes sense and, if Australia's trade policy experts could shake free of their ideological shackles, they would see that it could benefit Australia. If free trade ideology were no longer to determine Australian agriculture, policy-makers would be forced to rethink their mistaken idea that the future of our farm sector lies in being able to compete with subsidised offshore competitors, both here and in export markets.

With agricultural trade outside WTO rules, Australia would be free to reimpose domestic preference for our farm sector against subsidised offshore competition. Our farm sector could be revitalised and our dependence on imported food products reduced. In the process, we would be taking the first steps towards reducing the mountain of foreign debt our country is now carrying.

If we take up France's suggestion, just possibly the French could be doing us a favour.

- Colin Teese is a former deputy secretary of the Department of Trade.